Third Circuit Joins Seventh and Ninth Circuits Holding that Federal Common Law Standard for Successor Liability Applies to FLSA Claims

Last week, the Third Circuit issued a precedential decision holding that the federal common law standard for successor liability is applicable to claims brought under the Fair Labor Standards Act. The plaintiff filed a class and collective action complaint alleging that she was hired as a mortgage underwriter and was not paid overtime in accordance with federal law and the New Jersey Wage and Hour Law. The district court dismissed plaintiff’s amended complaint, but the Third Circuit vacated the district court’s decision and remanded for further proceedings.

The Third Circuit now applies the same successor liability standard as the Seventh and Ninth Circuits. Under this standard a court considers the following factors: (1) continuity of operations and work force of the successor and predecessor employers, (2) notice to the successor-employer of its predecessor’s legal obligation, and (3) ability of the predecessor to provide adequate relief directly. The Court of Appeals also concluded that the complaint adequately pled a claim under the successor liability theory and noted that “we will not fault [plaintiff] for her inability to make specific allegations as to the continuity of ownership at this stage, particularly given her reasonable assertion that the inner working of the privately held corporations at issue remain hidden to her.”

The Third Circuit also held that the complaint adequately alleged that the two corporate defendants were joint employers explaining that “the scenario described by [plaintiff], in which she and virtually all other Security Atlantic employees were abruptly and seamlessly integrated into REMN’s commercial mortgage business while some of those same employees continued to be paid by Security Atlantic, supports [plaintiff’s] claim that the two companies shared authority over hiring and firing practices.” Finally, the Third Circuit determined that the amended complaint provided enough information to “allow the court to draw the reasonable inference that the [individual] defendants are liable for misconduct alleged.”

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.